IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘SMC’ BENCH AT KOLKATA Before SHRI SONJOY SARMA, JUDICIAL MEMBER &

SHRI RAKESH MISHRA, ACCOUNTANT MEMBER ITA No(s).: 3248/KOL/2025 Assessment Year(s): 2017-18 Padam Kumar Agarwal Assessing Officer, Ward-3(1)

Vs. Gangtok (Appellant) (Respondent)

PAN: ARLPA3845R Appearances:

Assessee represented by : Lata Goyal, CA.

Department represented by : Madhumita Das, Addl. CIT, Sr. DR.

Date of concluding the hearing : 09-February-2026 Date of pronouncing the order : 25-February-2026

ORDER

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

This appeal filed by the Assessee is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2017-18 dated 28.10.2025.

2. The Assessee is in appeal before the Tribunal raising the following grounds of appeal:

“1. That the learned CIT(A) erred in law and on facts in confirming additions of ?34,03,553/-. The order is bad in law, arbitrary, perverse, and liable to be quashed.

2. The appellant, a bona fide Sikkimese old settler, is entitled to exemption under Section 10(26AAA) of the Income Tax Act, which provides tax relief on income from Sikkim for those with a valid Sikkimese status. The appellant meets all requirements, including being a resident of Sikkim before its merger with India in 1975, a member of the Association of Old Settlers, and having income from business in Gangtok. The Supreme Court decision in 2023 supports the exemption, striking down restrictive interpretations. Despite the CIT(A)s refusal to grant exemption, citing pending litigation, the IT AT Kolkata in a similar case for AY 2017-18 granted the exemption, supporting the appellants claim.

3. The appellant argued that there was no mandatory obligation to file a return of income as all income was exempt under Section 10(26AAA). The appellant had a bona fide belief based on Supreme Court interim stay orders and prima facie merit in the old settlers claims. The assessment under Section 144 was completed hastily, with only 6 days between the show- cause notice and assessment order. Key evidence like the Residential Certificate, Trade License, and VAT Returns were rejected without proper consideration. The ITAT Kolkata decision in Chandra Sales Agency supports that when the exemption under Section 10(26AAA) applies, the assessment is unsustainable. Therefore, the assessment under Section 144 is invalid and should be quashed.

4. The appellant challenged the addition of Rs. 20,00,000 under Section 69A, claiming the entire Rs. 22,00,000 was explained as legitimate business receipts from the textile business Darjeeling Stores. The cash represented accumulated sales proceeds, with turnover disclosed in VAT returns, and was deposited during demonetization as required. The AO made dual additions on the same receipts Rs.22,00,000 as unexplained income under Section 69A and Rs. 14,03,553 as estimated profit from business, leading to impermissible double taxation. The CIT(A) granted only Rs. 2,00,000 relief without basis, which was arbitrary. The ITAT Kolkata in Chandra Sales Agency held that such additions must be deleted when exemption under Section 10(26AAA) applies. Thus, the entire addition of Rs.

22,00,000 under Section 69A should be deleted.

5. The appellant argued that the assessment order and CIT(A) order violated the principles of natural justice. The assessment was completed in just 6 days, denying adequate time for the appellant to respond. No personal hearing was granted, even though detailed written replies and supporting documents were submitted. Key evidence, including the Residential Certificate, Trade License, and VAT Returns, were rejected without reasons OR an opportunity for explanation. The CIT(A) also ignored the Supreme Courts decision in Association of Old Settlers of Sikkim, despite it being cited. Furthermore, the CIT(A) did not provide sufficient opportunit